San Juan Basin Royalty Trust Reports No Cash Distribution for September
San Juan Basin Royalty Trust Declares No Cash Distribution
In a recent announcement, Argent Trust Company, the trustee of the San Juan Basin Royalty Trust (NYSE: SJT), has declared that there will be no cash distribution for its unit holders for the month of September due to substantial production costs exceeding the gross proceeds derived from its activities. This decision has arisen as a result of high operational expenses coupled with persistently low natural gas prices. When production costs and capital expenditures outstrip income for the period, it results in excess costs that the Trust cannot cover with current revenue.
Production Costs and Revenue Overview
For the production month of July, Hilcorp San Juan L.P., as the operator of the Trust’s interests, reported a total revenue of $3,905,235. This includes approximately $3,670,009 from gas revenues and $235,226 from oil revenues. Despite these figures, the Trust faced significant production costs of $6,966,097, highlighting a pressing financial challenge. These expenses entail lease operating expenses, severance taxes, and substantial capital costs, leading to the decision regarding distribution.
Future Financial Strategy and Reserves
The Trust is currently navigating an environment where production costs are forecasted to remain elevated. Hilcorp has indicated that the excess production costs for this reporting period, amounting to approximately $11,517,368 gross, will be charged to the next month's distributions. Consequently, without enough net proceeds to cover Trust liabilities and rebuild cash reserves, no distributions will be made. The administrative costs for the Trust this month have totaled $145,121, which further underscores the financial constraints the Trust is encountering.
Managing Cash Reserves
Cash reserves are critical for the Trust’s ongoing operations, especially during this period of low revenues. As of April 30, 2024, total cash reserves were recorded at $1.8 million following strategic decisions made by the Trustee to increase these reserves earlier this year. Current administrative expenses are partially offset by interest income, with cash reserves expected to be leveraged further as necessary until there is a secure financial footing for future distributions.
Production Insights and Market Conditions
Gas production volumes for July amounted to 1,891,889 Mcf, which showcases a slight uptick compared to June's figures. Notably, the average gas price for July was $1.94 per Mcf, which, while an improvement over June's average, still falls short of adequate revenue to cover expenses. Market conditions remain volatile, raising concerns about future profitability amidst increased capital expenditures and fluctuating commodity prices in the energy sector.
Trust’s Compliance and Audit Processes
The San Juan Basin Royalty Trust is committed to diligent oversight and compliance regarding its financial dealings. This includes a rigorous auditing process where third-party auditors assess payments made to the Trust, including sales revenues and related costs. As the Trust continues to monitor the situation closely, these efforts are designed to ensure the financial health and adherence to its operative agreements, ensuring that all parties involved are operating in compliance with necessary regulations.
Frequently Asked Questions
What caused San Juan Basin Royalty Trust to not declare a cash distribution?
The Trust faced excess production costs that outstripped its gross proceeds, primarily due to significant lease operating expenses and low natural gas prices.
When is the next cash distribution expected?
There will be no cash distributions made until the Trust's net proceeds are sufficient to cover liabilities and replenish cash reserves.
How do production costs affect unit holders?
High production costs can prevent distributions to unit holders, impacting their expected returns from investments in the Trust.
What are the current cash reserves of the Trust?
The Trust's cash reserves currently stand at approximately $1,099,699, after utilizing a portion to cover administrative expenses.
How is the Trust ensuring compliance in its operations?
The Trust engages third-party auditors to assess payments and operational compliance, ensuring adherence to all contractual and legal obligations.
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